X. Comments on the Draft Decision
The draft decision (DD) of the ALJ in this matter was mailed to Applicant (there are no other parties) in accordance with Pub. Util. Code § 311(g)(1), and Rule 77.7 of the Commission's Rules of Practice and Procedure. Applicant filed comments on March 25, 2002.
In its comments on the DD, Applicant argues that proposed fine and restitution orders are stayed by its February 15, 2002 bankruptcy filing in U.S. Bankruptcy Court for the District of Delaware. It points out that Section 362(a)(1) of the Bankruptcy Code4 prohibits the Commission from commencing or continuing any "judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of that case under this title." Applicant then goes on to argue that the police and regulatory power exception under Section 362(b)(4) does not apply here. The DD orders restitution to ratepayers harmed by Applicant's actions, and also fines it pursuant to Pub. Util. Code § 2107.
We recognize that the filing a bankruptcy petition operates as a stay applicable to all entities, of "the commencement or continuation of a judicial, administrative, or other action or proceedings against the debtor; and that the general policy behind the automatic stay is to grant complete and immediate, albeit temporary, relief to the debtor from creditors and to prevent dissipation of the debtor's assets before orderly distribution to all creditors can be affected." (S.E.C .v. Brennan (2nd Cir. 2000), 230 F3d, 65, 71.) In other words, a main purpose of the stay is to protect the priority of payments to creditors.
We also recognize that the Bankruptcy Code provides certain exceptions to the automatic stay. Section 362(b)(4) provides an exception for certain governmental police and regulatory actions. This section provides that the filing
of a petition does not stay "the commencement or continuation of an action or proceeding by a governmental unit...to enforce such governmental unit's...police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unity to enforce such governmental unit's...police power." We understand that this provision permits a governmental unit such as the Commission to "commence or continue any police or regulatory action, including one seeking a money judgment, but it may enforce only those judgments and orders that do not require payment or authorize the government to exercise control over property of the estate." 3 Collier at 362-59 to 362-60. This exemption allows these proceedings to continue so that the bankruptcy court does not become a "haven for wrong doers." (Berg v. Good Samaritan Hospital (9th Cir. 2000) 230 F.3d 1165, 1167.)
We understand that the U.S. Ninth Circuit Court of Appeals applies two tests for determining whether a state's actions falls within the scope of Section 362(b)(4): the pecuniary purpose test and the public policy test. Under the "pecuniary purpose" test, the court must determine "whether the government action relates primarily to the protection of the government's pecuniary interest in the debtor's property or to the matters of public safety and welfare. (See Universal Life Church, Inc. v. United States of America (9th Cir. 1997) 128 F.3d 1294, 1297.) The relevant inquiry here is whether the action is being pursued "solely to advance a pecuniary interest of the governmental unit," in which case the stay will be imposed. (Universal Life Church, Inc. v. United States of America (9th Cir. 1997) 128 F.3d 1294, 1297.) Such actions have been described as those that would "result in an economic advantage to the government or its citizens over third parties in relation to the debtor's estate." (In re Charter First Mortg., Inc., 42 B.R. 380, 382 (Bankr. D. Or. 1984).) We believe it is clear from the facts and reasoning set forth above, that this test does not apply to the fines, which we impose on Applicant herein.
Our research reveals that Courts apply the "public policy" test in order to "distinguish between government actions that effectuate public policy and those that adjudicate private rights." (Universal Life Church, Inc. v. United States of America (9th Cir. 1997) 128 F.3d 1294, 1297.) This research also reveals that from the legislative history of Section 362(b)(4) and case law, it is well established that consumer protection is a valid exercise of the police and regulatory power for purposes of this section. We note that our imposition of a fine is necessary as a deterrent to encourage all other utilities that find themselves in similar situations to follow the requirements or our regulations. Thus, we believe the action we are taking herein is primarily concerned with consumer protection, and that it does not conflict with any purpose of federal bankruptcy law, and that this order will be upheld in the bankruptcy court.
We believe that a strong case can be made that the restitution order set forth in the DD falls within the exception set forth in Section 362(b)(4). We also believe that the fines proposed by the DD fall clearly within the exceptions of Section 362(b)(4). In order to avoid unnecessary litigation, however, we will not order Applicant to provide restitution to those ratepayers who were harmed by Applicant's actions.
In its comments on the DD, Applicant alleges that D.01-06-036 established new rules for customer notices for withdrawal from service, and that application of those rules to notices given before that decision was issued constitutes retroactive rulemaking. The supposedly new rules are the requirement that if an applicant issues a notice, prior to Commission approval that it intends to discontinue service on a specified date, it must indicate that discontinuance is subject to the Commission's approval, and that it may not discontinue service until such approval has been obtained. Applicant is incorrect. D.01-06-036 did not establish new rules. It merely applied the existing requirement of GO 96-A, Section XIV that the Commission's approval is needed prior to withdrawal from service. Therefore, separate from the fact that no rulemaking was involved, no retroactive imposition of a new rule has occurred. Furthermore, the customer notices addressed in D.01-06-036 were sent to customers before the decision was issued, and before Applicant's notices in this proceeding were sent. Therefore, for application of the requirements of D.01-06-036 in this proceeding to constitute retroactive rulemaking, their application in D.01-06-036 would also have to constitute retroactive rulemaking. Applicant has made no such allegation, and such is not the case.
Applicant cited several recent decisions where the Commission found that customer notices did not indicate that the Commission's approval was necessary for service to be withdrawn. Since the Commission did not impose restitution or fines in those decisions, Applicant argues that their imposition in this proceeding is discriminatory. These decisions are discussed below.
In D.01-08-068, the request of Cable & Wireless U.S.A., Inc. to withdraw from providing local exchange services was approved. The applicant was found to have properly issued a customer notice that said service discontinuance was subject to Commission approval. No restitution or fine was imposed because notice was properly given, and no customer's service was interrupted. That is not the case herein.
In D.01-09-040, the request of Rythms Links, Inc. to withdraw from providing local exchange and interexchange services was approved. In that proceeding, the applicant was found to have improperly issued a customer notice that said service would be discontinued on a specified date, prior to receiving the Commission's approval, and without indicating that discontinuance was subject to Commission approval. No fine was imposed. The Commission's approval was after the date specified in the notice because of an administrative oversight by the Commission. It would have been inappropriate to impose sanctions on a utility for the Commission's error. No such administrative oversight by the Commission has occurred in this proceeding.
In D.01-10-062, the request of Teligent Services, Inc. to discontinue providing specified local exchange services, and to complete a Bankruptcy Code Chapter 11 reemergence plan, was approved. The applicant issued customer notices that said it had filed for bankruptcy, and filed with the Commission and the Federal Communications Commission for approval to withdraw from service. No restitution or fine was imposed because the notices satisfied the Commission's requirements. That is not the case herein.
In D.01-10-063, the request of Broadband Office Communications, Inc. to withdraw from providing local exchange and interexchange services was approved. The applicant was found to have improperly issued customer notices that said service would be discontinued on a specified date, prior to receiving the Commission's approval, and without indicating that discontinuance was subject to Commission approval. No restitution or fine was imposed because no customer's service was interrupted. That is not the case herein.
In D.01-11-019, the request of Sprint Communications Company, L.P. to withdraw from providing local exchange services was approved. The applicant obtained the Commission's approval prior to sending customer notices. That is not the case herein.
In D.01-11-020, the request of Mpower Communications Corporation to withdraw from providing local exchange services in specified areas was approved. The applicant was found to have improperly issued a customer notice that said service would be discontinued on a specified date, prior to receiving the Commission's approval, and without indicating that discontinuance was subject to Commission approval. The applicant subsequently issued a corrected notice that corrected these deficiencies. In addition, no customer's service was interrupted, and no customer switched to another carrier as a result of the first notice. No restitution or fine was imposed. That is not the case herein.
In D.01-11-022, the request of OpTel (California) Telecom, Inc. to discontinue providing local exchange services was approved. The applicant was found to have improperly issued a customer notice that said service would be discontinued on a specified date, prior to receiving the Commission's approval, and without indicating that discontinuance was subject to Commission approval. No restitution or fine was imposed because no customer's service was interrupted. That is not the case herein.
In D.01-11-024, the request of Onsite Access Local, LLC to withdraw from providing local exchange and interexchange services was approved. The applicant issued a customer notice that said service would be discontinued on a specified date, prior to receiving the Commission's approval, and without indicating that discontinuance was subject to Commission approval. The Commission did not find that service was interrupted to any customer. No restitution or fine was imposed.
In the above decisions, the Commission did not impose restitution or fines because (1) the notices satisfied the Commission's requirements, (2) the notices were incorrect due to an administrative oversight by the Commission, or (3) service to customers was not interrupted. In this case, the notices did not satisfy the Commission's requirements, and service to customers was interrupted. Therefore, Applicant's claim of discriminatory treatment is unsubstantiated.
Applicant argues that the draft decision is wrong in stating that customers had a right to expect it to continue to provide service indefinitely, especially since it is not a carrier of last resort. This is not what was said. The utility is required to continue to provide service until it is authorized to discontinue service. The customers have a right to expect it to provide service until it is authorized by the Commission to stop.
Applicant argues that had the Commission acted expeditiously, it would not have been able to transfer the three customers, whose service it interrupted, without their consent. The Application was filed in May 9, 2001, and the service interruptions occurred on June 28, 2001. Given Applicant's customer notice violations, the application could not have been processed before the interruptions occurred.
Applicant states that the financial figures for its parent in the draft decision are erroneous. It says that the correct figures for December 31, 2001 are assets of $72 million, and a net loss for 2001 of approximately $344 million. The draft decision contained typographical errors. The errors have been corrected herein. As corrected, they show assets of $267 million and a net loss of $107 million as of December 31, 1999. These figures are taken from Applicant's last annual report filed with the Commission. Applicant is required to file financial reports every year. It filed no reports for 2000 and, as yet, none for 2001. Its representation in its comments is merely argument. It did not provide a copy of its financial statements with its comments. In addition, the assigned ALJ issued two rulings requiring that Applicant, among other things, provide "a full and complete explanation" of why it should not be fined for its misconduct. The second ruling went further by explicitly requiring Applicant to provide any "other relevant information that Applicant believes should be considered by the Commission in addressing this application, including, but not limited to potential fines, restitution, and revocation of its CPCN." Applicant could and should have known that its financial resources were a factor in determining what level of fines to impose, and could have provided updated financial figures in its responses to either ruling. It chose not to do so. The draft decision properly relies on Applicant's most recently filed reports. Applicant will not be allowed to benefit from its failure to follow the Commission's reporting requirements, or fully respond to ALJ rulings.
Findings of Fact
1. The application appeared in the Daily Calendar on May 11, 2001.
2. No protests have been filed.
3. Applicant was authorized in D.97-02-038 to provide facilities-based and resold local exchange and interexchange service.
4. On April 3, 2001, Applicant filed Advice Letter 63 requesting authority to withdraw from providing local exchange and interexchange service to selected rate centers.
5. On April 16, 2001, Applicant supplemented Advice Letter 63 by Advice Letter 63-A that revised the filing to address only interexchange service.
6. On April 3, 2001, Applicant mailed a notice to customers in the selected rate centers stating that service would cease on May 15, 2001.
7. On May 15, 2001, Applicant mailed a notice to customers in the selected rate centers stating that service would cease on June 16, 2001.
8. As of May 9, 2001, 427 of the 621 customers in the selected rate centers had pending service orders with other carriers.
9. By July 16, 2001, only nine customers in the selected rate centers remained, of which three were to start service with other carriers on July 17, 2001, and three had service orders pending with other carriers.
10. On or about June 28, 2001, Applicant suspended service (except 911 and 611) for part of a day to the remaining three customers in the selected rate centers, and informed them that service would be temporarily reinstated when they called back with a service order from another provider.
11. On August 31, 2001, Applicant mailed a notice to its remaining customers, except for multi-location customers, stating that service would be discontinued effective September 30, 2001.
12. After the filing of Applicant's first modification, its only remaining customer, a multi-location customer, notified Applicant that it was going out of business and would terminate its service on October 31, 2001.
13. The notice requirements in D.97-06-096 for advice letter filings are useful as a guide in this proceeding.
14. Applicant's statement in its application that its April 3, 2001 notice contained a statement that "FW SoCal would not impose any fees for the transfer to another carrier" is false.
15. Applicant's April 3 and May 15, 2001 notices did not satisfy the notice requirements in D.97-06-096 because Applicant was not authorized to discontinue service on the dates specified in the notices.
16. Pursuant to GO 96-A, Section XIV, Applicant is required to continue to provide local exchange service until its withdrawal is approved by the Commission.
17. Applicant's April 3 and May 15, 2001 notices state that service will be discontinued on the dates specified therein, and do not indicate that Applicant may not discontinue service unless and until its request is approved by the Commission.
18. The ALJ ruling dated June 28, 2001 reminded Applicant of the fact that it must obtain the Commission's approval before withdrawal.
19. Nothing in Applicant's tariff allows it to discontinue or suspend service when a customer fails to respond to a notice.
20. The three false and misleading notices constitute three violations of GO 96-A, Section XIV, and Pub. Util. Code § 702, and suggest an ongoing compliance deficiency.
21. The service interruptions of three customers constitute three violations of Applicant's tariffs.
22. Applicant made no attempt in its second or third notices to correct the violations in its first notice.
23. Applicant's violations of GO 96-A, Section XIV, Pub. Util. Code § 702, and its tariffs were deliberate.
24. Applicant's filings with the Commission report combined financial information.
25. The name of Applicant and its affiliate, FirstWorld Anaheim, appeared on the first two notices.
26. First World Anaheim filed a similar application (A. 01-05-022) on the same day this application was filed, using the same outside counsel.
27. First World Anaheim's responses to ALJ rulings in A.01-05-022 are very similar to Applicant's responses in this application.
28. Applicant's operations are not independent of its affiliates.
29. The parent must be deterred from wrongdoing.
30. Applicant's violations were more severe than Verizon's violations addressed in D.01-06-036 because it withdrew from service through the use of false and misleading notices, and interrupted service to three customers.
31. Applicant's violations were worse than Net and Mail's violations addressed in D.00-12-053 because its violations were intentional, and it took no steps to remedy them.
32. Applicant's parent's financial condition is generally comparable to Net and Mail's.
33. Concurrently with this application, Applicant filed a motion for leave to file (1) its letter of agreement with Mills, the owner of the Block, to provide service to Block, and (2) a letter dated May 3, 2001 from Mills to the tenants of Block regarding Applicant's discontinuation of service to Block, under seal.
34. The letter of agreement contains information about Mills's business planning and strategy, and related information, that is confidential to Mills and not available to the public.
35. The May 3, 2001 letter contains no information about Mills, and does not indicate that it should be treated as confidential by Mills's tenants or Applicant.
36. The only information Mills's May 3, 2001 letter contains about Applicant is the service discontinuance date that Applicant had already made public.
37. The May 3, 2001 letter contains no confidential information, and has been widely disseminated.
38. Since D.01-06-036 did not establish new rules, no retroactive imposition of a new rule has occurred.
39. In D.01-08-068, D.01-09-040, D.01-10-062, D.01-10-063, D.01-11-019, D.01-11-020, D.01-11-022, and D.01-11-024, the Commission did not impose restitution or fines because (1) the notices satisfied the Commission's requirements, (2) the notices were incorrect due to an administrative oversight by the Commission, or (3) service to customers was not interrupted.
40. Since the Application was filed in May 9, 2001, and the service interruptions occurred on June 28, 2001, and given Applicant's customer notice violations, the application could not have been processed before the interruptions occurred.
41. Applicant is required to file financial reports every year.
42. Applicant filed no reports for 2000 and, as yet, none for 2001.
43. Applicant did not provide a copy of its financial statements with its comments.
44. The assigned ALJ issued two rulings requiring that Applicant, among other things, provide "a full and complete explanation" of why it should not be fined for its misconduct.
45. The assigned ALJ's second ruling required Applicant to provide any "other relevant information that Applicant believes should be considered by the Commission in addressing this application, including, but not limited to potential fines, restitution, and revocation of its CPCN."
46. Applicant could and should have known that its financial resources were a factor in determining what level of fines to impose, and could have provided updated financial figures in its responses to either ruling, but chose not to do so.
1. A hearing is not necessary.
2. Applicant's April 3 and May 15, 2001 notices are false and misleading.
3. Applicant's August 31, 2001 notice, which mentions that this application was filed, is false and misleading because it says that service will cease effective September 30, 2001.
4. Applicant could and should have known that it needed the Commission's approval before it could discontinue local exchange service.
5. Applicant's notices were intended to mislead its customers into transferring to other carriers.
6. On or about June 28, 2001, Applicant violated its tariffs when, it suspended service (except 911 and 611) for part of a day to the remaining three customers, and informed them that service would be reinstated when they called back with a service order from another provider.
7. Applicant's former customers could not have been required to switch to another carrier prior to the effective date of this decision.
8. Applicant effectively withdrew from providing local exchange service to its customers without the Commission's advance approval in violation of GO 96-A, Section XIV, and Pub. Util. Code § 702.
9. For the purpose of assessing a fine, the parent's financial condition should be considered using the reported combined financial statements.
10. Applicant should be fined $24,000.
11. Applicant's CPCN should be revoked after it has fully complied with this decision.
12. Applicant's motion for leave to file the letter of agreement, and the May 3, 2001 letter from Mills to its tenants, under seal should be granted for the letter of agreement, and denied for the May 3, 2001 letter.
13. Section 362(a)(1) of the Bankruptcy Code prohibits the Commission from commencing or continuing any "judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of that case under this title."
14. The filing of a bankruptcy petition operates as a stay applicable to all entities, of "the commencement or continuation of a judicial, administrative, or other action or proceedings against the debtor.
15. The general policy behind the stay is to grant complete and immediate, albeit temporary, relief to the debtor from creditors and to prevent dissipation of the debtor's assets before orderly distribution to all creditors can be affected."
16. A main purpose of the stay is to protect the priority of payments to creditors.
17. Section 362(b)(4) provides that the filing of a petition does not stay "the commencement or continuation of an action or proceeding by a governmental unit...to enforce such governmental unit's...police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unity to enforce such governmental unit's...police power."
18. Section 362(b)(4) permits a governmental unit such as the Commission to "commence or continue any police or regulatory action, including one seeking a money judgment, but it may enforce only those judgments and orders that do no require payment or authorize the government to exercise control over property of the estate.
19. The exemption allows these proceedings to continue so that the bankruptcy court does not become a "haven for wrong doers."
20. The U.S. Ninth Circuit Court of Appeals applies two tests for determining whether a state's actions falls within the scope of Section 362(b)(4): the pecuniary purpose test and the public policy test.
21. Under the pecuniary purpose test, the court must determine "whether the government action relates primarily to the protection of the government's pecuniary interest in the debtor's property or to the matters of public safety and welfare."
22. The relevant inquiry is whether the action is being pursued "solely to advance a pecuniary interest of the governmental unit," in which case the stay will be imposed.
23. Such actions have been described as those that would "result in an economic advantage to the government or its citizens over third parties in relation to the debtor's estate."
24. Courts apply the "public policy" test in order to "distinguish between government actions that effectuate public policy and those that adjudicate private rights."
25. The legislative history of Section 362(b)(4) and case law establish that consumer protection is a valid exercise of the police and regulatory power for purposes of this section.
26. Our imposition of a fine is necessary as a deterrent to encourage all other utilities that find themselves in similar situations to follow the requirements or our regulations.
27. The action we are taking herein is primarily concerned with consumer protection, and does not conflict with any purpose of federal bankruptcy law.
28. A strong case can be made that the restitution order set forth in the DD falls within the exception set forth in Section 362(b)(4).
29. The fines proposed by the DD fall clearly within the exceptions of Section 362(b)(4).
30. The pecuniary purpose test does not apply to the fines, which we impose on Applicant herein.
31. In order to avoid unnecessary litigation in bankruptcy court, we will not order Applicant to provide restitution to those ratepayers who were harmed by Applicant's actions.
32. Applicant's claim of discriminatory treatment is unsubstantiated.
33. The DD properly relies on Applicant's most recently filed reports.
34. Applicant should not be allowed to benefit from its failure to follow the Commission's reporting requirements, or fully respond to ALJ rulings.
35. This order should be made effective immediately so that Applicant can complete its cessation of operations as soon as possible.
IT IS ORDERED that:
1. The application of FirstWorld SoCal (Applicant) to withdraw from the provision of local exchange service is granted to the extent set forth below.
2. Applicant shall pay a fine of $24,000 payable to the California Public Utilities Commission for deposit to the General Fund, and shall remit said amount to the Commission's fiscal office within 30 days of the effective date of this order.
3. Applicant shall not accept new customers.
4. Applicant shall provide 30 days notice to its remaining customers, if any, that it will discontinue service pursuant to this order. The notice shall satisfy all applicable Commission requirements.
5. Applicant's Certificate of Public Convenience and Necessity to provide local exchange service is revoked effective the date Applicant has fully complied with this order.
6. Applicant's motion, filed concurrently with this application, for leave to file its letter of agreement with Orange City Mills Limited Partnership (Mills) under seal is granted.
7. Applicant's motion, filed concurrently with this application, for leave to file the May 3, 2001 letter, from Mills to its tenants, under seal is denied.
8. This application is closed.
This order is effective today.
Dated May 16, 2002, at San Francisco, California.
LORETTA M. LYNCH
President
HENRY M. DUQUE
CARL W. WOOD
GEOFFREY F. BROWN
MICHAEL R. PEEVEY
Commissioners
